Are we French?
Time just published an article as to why we are like the French -- based on our economic plight, the greed of Republicans on Wall Street, nationalization of industries -- probability of automobile meltdown, a social security system that is going broke, etc. Actually a funny article but ... sadly too far from reality, as ugly as it is. The gist of the article is that we are hypocrites and the Bushies, the worst of the lot, pushing "ownership society" -- owning your house and your retirement account. As a result -- according to the article -- Americans mortgaged themselves to the hilt to buy overpriced houses they could not afford and signed onto 401(k)s that put money in the stock market where rich Republicans swiped it.
The Time article conveniently forgets that it was Congress that passed legislation enforcing "affordable housing." Both Fannie and Freddie have given $200 million (no joke) to politicians from both sides ... BUT, Senators Dodd, Obama and Clinton were the top recipients in the last three years. The top 12 were 9 Dems and 3 Reps. Housing -- owning your own house -- has been a Democratic mantra ever since the New Deal. Returning G.I.s from WW2 got cheap loans to buy and build from a Democrat-controlled Congress. Ever since, the goal of Democrats was to remove their constituents from mean Republican landlords -- get them housed free of charge or nearly so, and they will vote for us.
So when Americans mortgaged themselves to the hilt, it was a permissive society that allowed this to happen, a society that always expected big government to save them from their own stupidity, a federal safety net for all. Greed, you see, is not solely a Republican vice (though Republicans sure seem greedy as a rule), and when the Great Unwashed tried to cash in on the investment that could not go down, it was not some great Right Wing Plot to enfranchise the predominantly left-leaning poor and minorities. It was lotto, pure and simple. Any notion of property being overpriced is purely an instance of what greedy people were willing to pay to cash in: nobody priced the real estate "so they will have to go bankrupt."
Now Fannie and Freddie hold potentially hundreds of billions of dollars worth of lotto tickets, scratched and with no match.
Why look at Fannie and Freddie? They hold $5.2 trillion of the nation's $12 trillion in outstanding mortgages and almost no capital (as opposed to banks that have to back their lending). If you are looking at the subprime mess and the American fiasco, you must look at the largest player. Come to think of it, how deep underwater are they? $500 billion? More? And who is going to oversee the bailout? Are there any acceptable "neutrals" with enough chops to do it? Bloomberg? Romney? Buffet?
And who is going to foreclose on the now-federal properties? Or are we about to witness the greatest give-away ever: a hand-out of property (for political reasons) of the vast stock of millions of houses and apartments to the very people who, through (an understandable) greed took out the unpayable mortgages? And who will in fact be paying those mortgages? You and me ... the taxpayers, the people who didn't borrow more than they could afford. Punishment of the prudent by the grasping. Priceless.
Yes, there were mortgage industry people trying to sell mortgages. They made fees. And Wall Street banks that repackaged crap using fancy financial mechanics into supposedly "investment quality securities." But nothing can occlude the fact that a vast number of these mortgages should never have been written -- they could never, ever be paid, even with the surreal assumption that property prices would continue to rise. These were simple gambles that prices would rise fast enough to permit a "flip" before payment would crush the borrower. But someone, some organization needed to take these on the books.
Before you look at the organizations that created the securities (CDOs) that facilitated the subprime mess and think "bloody Republicans," think again. According to the NY Times (hardly a McCain booster squad), Obama outraised McCain by more than 3:1 ($9.9 million to $3 million) from individuals associated with the securities industry. From failed Lehman Bros, the top recipients were, in order, Clinton, Obama, Schumer, Dodd, Lieberman, Kerry, McCain, Lugar, Reed, Lautenberg, Biden and Feinstein. This reflects broadly, and intensively, the political donations made by the Managing Directors, CEOs and SVPs of Wall Street firms. The "evil" Republican Wall Street firms which, according to the Time article, raped the investors and public, overwhelmingly have given more to Democrats and the Democratic Party than to the GOP. Some firms have produced Democrat politicians -- John Corzine is a Goldman Sachs alum.
But clearly, F&F needed some oversight and got none, ever. Bush (who IS, in fact, a moron) DID try to reform and regulate Fannie and Freddie -- but was shot down by the Dems in the House. Again, from the New York Times:
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
”The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,” Mr. Oxley said at the hearing. ”We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,” the independent agency that now regulates the companies.
”These irregularities, which have been going on for several years, should have been detected earlier by the regulator,” he added.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Right on, Barney. No crisis. And the fact is, the Democrat-controlled House and Senate followed up on Clinton's push for "affordable housing" and prompted Fannie and Freddie to churn out loans to those simply unable to repay them. So who was running F&F? Democrats.
Franklin Raines -- Clinton's budget director -- was paid $90 million for 5 years at Fannie and below market mortgages (though with that paycheck, why use debt?). Raines had to resign due to accounting fraud overstating earnings by ... $6 billion ... and which served to justify the pay package. Johnson, from 1991 to 1998 -- a Mondale aide -- was paid $21 million in last year at Fannie. Gorelick, Vice Chair at Fannie was deputy Attorney General for Bill Clinton. Gorelick got $26 million for his work at Fannie. This was all brought to light in 2006 when regulators filed suit for fraud to recover $115 million against Fannie Execs ... it was settled for $3 million plus surrender of stock options in Fannie -- now worthless. Johnson also chaired Obama's VP selection committee -- and was a Managing Director at ... Lehman Bros.
In 2005, Mc Cain introduced the Federal Housing Enterprise Regulatory Reform Act, a bill to address the regulation of secondary mortgage enterprises. It was shot down in a display of partisan politics ... by the Dems. Mc Cain said on the floor of the Senate:
"I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole." This was in 2005, remember that.
Remember that Fannie and Freddie holds how much of the outstanding national debt? Just under 50%? And they are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may have? F&F bought 18% of all CDOs issued in 2006 and 2007. What's so special about that? Well, if the banks can't find someone to lay their mortgages off onto, then they can't lend -- so preventing the run up on housing prices made by cheap and easy money. And if Wall Street can't find a customer for the CDOs, they won't create them. F&F, under pressure from all sides to produce profits, snagged the extra few basis points that the securities provided.
Where does Boosh fit it? Well , his administration didn't push anywhere near hard enough for regulatory reform of those two entities -- and then in 2005 the Dept of Housing and Urban Development pushed F&F to increase financing for low income areas and regions with high minority populations. Congress pushed that along with some urgency -- the Dem controlled house has those players as its largest constituents -- thanks, Mr. Frank. Those sectors rose to 39% of new F&F business in 2007. No doubt that various banks sold the loans and took the fees, but someone had to buy the debt. And the largest player was a pair of unregulated quasi Federal
entities.
Did F&F create this mess? No. Clearly not. Should they -- and the US taxpayer -- have been part of this? Maybe they would not have been, had they been adequately regulated and fraud-free. And with 20% of the market cut out, it may have served to slow he growth of this disaster.
What is clear to me is that both Republicans and Democrats have their fingers in it up to their elbows. No party should be laying blame on other party. It is, however, "affordable housing" and the chimera that it represents that is somewhere near the root of this mess. If you lend to people that can't pay, you should expect to write off those loans. Duh.
And in France, mortgage payments are NOT tax deductible. And banks have highly regulated lending / capitalization standards. They just formalized the subsidized nature of the (ware)housing of its minority population -- we hid behind "affordable housing."
The Time article conveniently forgets that it was Congress that passed legislation enforcing "affordable housing." Both Fannie and Freddie have given $200 million (no joke) to politicians from both sides ... BUT, Senators Dodd, Obama and Clinton were the top recipients in the last three years. The top 12 were 9 Dems and 3 Reps. Housing -- owning your own house -- has been a Democratic mantra ever since the New Deal. Returning G.I.s from WW2 got cheap loans to buy and build from a Democrat-controlled Congress. Ever since, the goal of Democrats was to remove their constituents from mean Republican landlords -- get them housed free of charge or nearly so, and they will vote for us.
So when Americans mortgaged themselves to the hilt, it was a permissive society that allowed this to happen, a society that always expected big government to save them from their own stupidity, a federal safety net for all. Greed, you see, is not solely a Republican vice (though Republicans sure seem greedy as a rule), and when the Great Unwashed tried to cash in on the investment that could not go down, it was not some great Right Wing Plot to enfranchise the predominantly left-leaning poor and minorities. It was lotto, pure and simple. Any notion of property being overpriced is purely an instance of what greedy people were willing to pay to cash in: nobody priced the real estate "so they will have to go bankrupt."
Now Fannie and Freddie hold potentially hundreds of billions of dollars worth of lotto tickets, scratched and with no match.
Why look at Fannie and Freddie? They hold $5.2 trillion of the nation's $12 trillion in outstanding mortgages and almost no capital (as opposed to banks that have to back their lending). If you are looking at the subprime mess and the American fiasco, you must look at the largest player. Come to think of it, how deep underwater are they? $500 billion? More? And who is going to oversee the bailout? Are there any acceptable "neutrals" with enough chops to do it? Bloomberg? Romney? Buffet?
And who is going to foreclose on the now-federal properties? Or are we about to witness the greatest give-away ever: a hand-out of property (for political reasons) of the vast stock of millions of houses and apartments to the very people who, through (an understandable) greed took out the unpayable mortgages? And who will in fact be paying those mortgages? You and me ... the taxpayers, the people who didn't borrow more than they could afford. Punishment of the prudent by the grasping. Priceless.
Yes, there were mortgage industry people trying to sell mortgages. They made fees. And Wall Street banks that repackaged crap using fancy financial mechanics into supposedly "investment quality securities." But nothing can occlude the fact that a vast number of these mortgages should never have been written -- they could never, ever be paid, even with the surreal assumption that property prices would continue to rise. These were simple gambles that prices would rise fast enough to permit a "flip" before payment would crush the borrower. But someone, some organization needed to take these on the books.
Before you look at the organizations that created the securities (CDOs) that facilitated the subprime mess and think "bloody Republicans," think again. According to the NY Times (hardly a McCain booster squad), Obama outraised McCain by more than 3:1 ($9.9 million to $3 million) from individuals associated with the securities industry. From failed Lehman Bros, the top recipients were, in order, Clinton, Obama, Schumer, Dodd, Lieberman, Kerry, McCain, Lugar, Reed, Lautenberg, Biden and Feinstein. This reflects broadly, and intensively, the political donations made by the Managing Directors, CEOs and SVPs of Wall Street firms. The "evil" Republican Wall Street firms which, according to the Time article, raped the investors and public, overwhelmingly have given more to Democrats and the Democratic Party than to the GOP. Some firms have produced Democrat politicians -- John Corzine is a Goldman Sachs alum.
But clearly, F&F needed some oversight and got none, ever. Bush (who IS, in fact, a moron) DID try to reform and regulate Fannie and Freddie -- but was shot down by the Dems in the House. Again, from the New York Times:
September 11, 2003
New Agency Proposed to Oversee Freddie Mac and Fannie Mae
By STEPHEN LABATON
The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
”The current regulator does not have the tools, or the mandate, to adequately regulate these enterprises,” Mr. Oxley said at the hearing. ”We have seen in recent months that mismanagement and questionable accounting practices went largely unnoticed by the Office of Federal Housing Enterprise Oversight,” the independent agency that now regulates the companies.
”These irregularities, which have been going on for several years, should have been detected earlier by the regulator,” he added.
”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”
Right on, Barney. No crisis. And the fact is, the Democrat-controlled House and Senate followed up on Clinton's push for "affordable housing" and prompted Fannie and Freddie to churn out loans to those simply unable to repay them. So who was running F&F? Democrats.
Franklin Raines -- Clinton's budget director -- was paid $90 million for 5 years at Fannie and below market mortgages (though with that paycheck, why use debt?). Raines had to resign due to accounting fraud overstating earnings by ... $6 billion ... and which served to justify the pay package. Johnson, from 1991 to 1998 -- a Mondale aide -- was paid $21 million in last year at Fannie. Gorelick, Vice Chair at Fannie was deputy Attorney General for Bill Clinton. Gorelick got $26 million for his work at Fannie. This was all brought to light in 2006 when regulators filed suit for fraud to recover $115 million against Fannie Execs ... it was settled for $3 million plus surrender of stock options in Fannie -- now worthless. Johnson also chaired Obama's VP selection committee -- and was a Managing Director at ... Lehman Bros.
In 2005, Mc Cain introduced the Federal Housing Enterprise Regulatory Reform Act, a bill to address the regulation of secondary mortgage enterprises. It was shot down in a display of partisan politics ... by the Dems. Mc Cain said on the floor of the Senate:
"I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole." This was in 2005, remember that.
Remember that Fannie and Freddie holds how much of the outstanding national debt? Just under 50%? And they are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may have? F&F bought 18% of all CDOs issued in 2006 and 2007. What's so special about that? Well, if the banks can't find someone to lay their mortgages off onto, then they can't lend -- so preventing the run up on housing prices made by cheap and easy money. And if Wall Street can't find a customer for the CDOs, they won't create them. F&F, under pressure from all sides to produce profits, snagged the extra few basis points that the securities provided.
Where does Boosh fit it? Well , his administration didn't push anywhere near hard enough for regulatory reform of those two entities -- and then in 2005 the Dept of Housing and Urban Development pushed F&F to increase financing for low income areas and regions with high minority populations. Congress pushed that along with some urgency -- the Dem controlled house has those players as its largest constituents -- thanks, Mr. Frank. Those sectors rose to 39% of new F&F business in 2007. No doubt that various banks sold the loans and took the fees, but someone had to buy the debt. And the largest player was a pair of unregulated quasi Federal
entities.
Did F&F create this mess? No. Clearly not. Should they -- and the US taxpayer -- have been part of this? Maybe they would not have been, had they been adequately regulated and fraud-free. And with 20% of the market cut out, it may have served to slow he growth of this disaster.
What is clear to me is that both Republicans and Democrats have their fingers in it up to their elbows. No party should be laying blame on other party. It is, however, "affordable housing" and the chimera that it represents that is somewhere near the root of this mess. If you lend to people that can't pay, you should expect to write off those loans. Duh.
And in France, mortgage payments are NOT tax deductible. And banks have highly regulated lending / capitalization standards. They just formalized the subsidized nature of the (ware)housing of its minority population -- we hid behind "affordable housing."
posted by Zaphod at Monday, September 22, 2008
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